Magic Number

 
Magic Number Test.JPG
 

How to use it

  • Use the metric for action. Number less than <.5: not ready to invest; <.75: evaluate; >.75: invest in S&M

  • If you spent $1 on S&M in the 2nd quarter of 2019 and your revenue then increased by 25 cents in the 3rd quarter, you would have a Magic Number of 1.0.

  • A magic number of 1.0 also implies that you paid back your customer acquisition costs in a one year time frame

Pro’s & con’s

Pro’s

Widely used as a measure of sales efficiency, enabling the management team to understand overall sales health

Con’s

On its own, the metric does not evaluate payback time in a way that the CAC Payback Period formula does

 

ARDAN TAKEAWAY

Create a cadence in the organization that is able to answer how many dollars of ARR do you create with one dollar in S&M spend.